To Refinance or pay off credit first

[jdmarsh2g]

Hey guys I'm new to this forum and I have been researching trying to find the right direction to go in regarding re-fi first or to pay down / off credit card balance.
What would be some of the questions one should ask themselves in doing so as far as numbers go?
Can someone point me in the right direction?
Much appreciated for all suggestions and thought processes.

thanks in advance,
Jonathan

[jIM_Ohio]

What type of debt is being refinanced (house, secured loan, secured credit line, or credit card (unsecured debt).

What is current cash flow?
Monthly and yearly expenses
Monthly and yearly income
difference between both?

examine present cash flow first
then if you refinance, what is the new cash flow?


Time value of money
what are the financial goals you have, and what is the order (timeline) and cost of each goal?

This is important because refinancing a debt can free up cash flow, but it might (in the long run) disrupt a goal. For example if a person has a 15 yr fixed mortgage at 8% and pays on it for 10 years, then refinances to a 30 yr fixed at 5% interest, I know cash flow will look good, but they would have paid 40 years on the mortgage, so the "cost" to free up the cash flow is really high.

If this situation were to generate more money for retirement savings, might be a good idea
If this situation were to generate money for college, a vacation or some other nice to have, probably not a good idea

If the timeline were to be re-examined, I bet the person could have paid off mortgage on original timeline and still achieved other goals, but its the timeline which will decide which path is right.


When you create a financial timeline, make sure things like paying off mortgage, kids college, and retirement are on the timeline. Other things like buying a replacement car, taking a vacation and other things unique to you will also be on the timeline.

[disneysteve]

It would also be important to know your FICO score. If you have a top-notch score, it doesn't much matter, but if your score could be better, paying off the CC debt first should help. Then you could probably get a better deal on the re-fi.